Market volatility and low interest rates led 41% of respondents to say they became more “tactical,” or opportunistic, in their investment decisions. Nevertheless, 36% of these investors believe they will not achieve their return assumptions (ranging from 29% in the U.S., 40% in Canada and 51% in Europe).
The survey also found that global institutions require median annual rates of return between 3% and 8% to cover liabilities and, despite major changes in capital markets, this required return has remained significantly unchanged in four years.
Global institutions’ top concern is low-return environment (31%), up from 25% at the onset of the financial crisis in 2008, the survey revealed.
Forty-one percent of schemes expect to use a more dynamic or opportunistic approach to allocation portfolio assets to boost returns. To do this, pension managers say they must conduct more frequent internal risk reviews (48%); streamline decisionmaking via preapproved asset allocations (34%); and emphasize investment committee education (26%).
Institutions are seeking excess returns, assets with low correlations to public markets and assets with different risk and return profiles. Eight in 10 pension managers believe picking the right market or region will be the primary source of future returns. More than one-quarter (29%) in the U.S., 30% in Canada, 33% in Europe and 23% in Asia said they would definitely or likely increase the use of more aggressive “sub asset classes,” such as emerging markets equity and debts.